If you are still holding shares of
Avnet Inc. ( AVT Quick Quote AVT - Free Report) in your portfolio, it is time you dump them as chances of favorable returns in the near term are bleak.
This is because the stock registered a negative return of 7.65% in the last one year, underperforming the Zacks Electronics Industry’s growth of 33.42%.
What are the Concerns?
Analysts have become increasingly bearish on this stock with four out of five analysts covering the stock revising the estimate downward. With no upward revision in the last 60 days, the Zacks Consensus Estimate for current quarter and fiscal 2017 declined from 94 cents to 77 cents and $3.32 per share to $3.21 per share, respectively. This indicates a decline of 18.1% and 3.3%, respectively, indicating tepid prospects for the company.
Avnet also posted mixed third-quarter results and issued not-so-encouraging fourth-quarter fiscal 2017 and fiscal 2018 revenue guidance.
For the fourth quarter, the company projects sales in the range of $4.35–$4.65 billion. Currently, the Zacks Consensus Estimate is pegged at $4.45 billion. Adjusted earnings per share are expected in the range of 72–82 cents.
For fiscal 2018, the company projects sales in the range of $17.3–$17.7 billion. Currently, the Zacks Consensus Estimate is pegged at $17.34 billion. Adjusted earnings per share are expected in the range of $3–$3.5 per share.
Currently, Avnet carries a Zacks Rank #5 (Strong Sell). Also, the company has a very poor VGM Score of “D.” Notably, the Zacks VGM Style Score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth, and most promising momentum, across the board. Stocks with a VGM Style Score of ‘A’ or ‘B’ and a Zacks Rank of #1 (Strong Buy) or 2 (Buy), have even better returns, on average, than the individual components, as it considers three times as many items that are correlated to future stocks returns.
Moreover, combined with other unattractive features like low return on equity (ROE) and low return on assets (ROA), the stock is unlikely to appeal. Avnet currently trades at a ROE of 9.2% compared with the industry’s average return of 11.7%. Notably, the company has a negative ROA of 3.9% compared with the industry’s average gain of 5.4%.
Going forward, a significant portion of Avnet’s revenues comes from the sale of semiconductors, which is a cyclical industry, characterized by changes in technology and manufacturing capacity and subject to significant market upturns and downturns. Intensifying competition from Arrow Electronics Inc. (ARW) also remains a headwind.
We expect the aforementioned factors to hurt the company’s near-term profitability. Hence, we recommend investors to stay away from Avnet until the Zacks Rank, VGM score and estimates improve.
Stocks to Consider
A few better-ranked stocks in the broader technology sector are DXC Technology Company. (
DXC Quick Quote DXC - Free Report) , Paylocity Holding Corporation ( PCTY Quick Quote PCTY - Free Report) and Quantum Corporation , each sporting a Zacks Rank #1 (Strong Buy).You can see . the complete list of today’s Zacks #1 Rank stocks here
DXC, Paylocityand Quantumhave a long-term expected earnings growth rate of 8%, 32.4% and 20%, respectively.
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